More Than You Bargained For: Seniority of Assumed Employees Still Relevant Even Where Purchaser is Granted Broad Release
In Antchipalovskaia v. Guestlogix Inc., 2022 ONCA 454 (“Guestlogix”), the Court of Appeal for Ontario recently held that where an employee is terminated and re-hired in the course of proceedings under the Companies’ Creditors Arrangement Act (Canada) (“CCAA”) and any claims associated with that termination are released, the employee’s pre-CCAA service period remains relevant in determining their entitlements if they are subsequently terminated again.
This is an important decision for purchasers of insolvent businesses that are assuming employees, as it indicates that the purchaser will be assuming at least a portion of that employee’s seniority (and subsequent termination pay obligations down the road) regardless of any release they obtain. Purchasers should factor in this contingent liability when determining the value to place on the business and the employees that it is assuming.
Facts: Employment Reset on CCAA Implementation
Ms. Antchipalovskaia commenced employment with Guestlogix Inc. in 2011. In 2016, Guestlogix commenced CCAA proceedings and a group of investors agreed to purchase all the shares of Guestlogix on the condition that the eventual CCAA plan would include a term releasing Guestlogix from any employee claims arising before the implementation date.
Ms. Antchipalovskaia was advised that she would be terminated and then immediately rehired for the same position on the same terms commencing the day after the CCAA plan was implemented. She submitted a proof of claim for her termination and severance entitlement which was accepted. She voted in favour of the CCAA plan. The CCAA plan was implemented on September 21, 2016 and Ms. Antchipalovskaia received a pro rata distribution representing 72% of her claim.
Ms. Antchipalovskaia was employed by Guestlogix for 2.75 more years until she was terminated without cause in June 2019. The employment agreement between Ms. Antchipalovskaia and Guestlogix purported to preclude entitlement to common law notice and Guestlogix only paid Ms. Antchipalovskaia her minimum entitlement under the Employment Standards Act, 2000 (“ESA”).
Motions Judge: Employment Continuous Notwithstanding CCAA Termination and Release
Ms. Antchipalovskaia brought an action for wrongful dismissal arguing that she was entitled to common law notice from 2011 to 2019. The motions judge held that:
- The termination provisions in the employment contract were invalid because they did not comply with the minimum requirements in the ESA. Ms. Antchipalovskaia was not precluded from being granted common law notice.
- Ms. Antchipalovskaia’s employment with Guestlogix should be treated as continuous from 2011 to 2019 and she was accordingly entitled to a 12 month notice period, less the amount of her distribution in the CCAA proceedings and the ESA entitlements she had been paid following the second termination.
Court of Appeal: Seniority Still Relevant Notwithstanding CCAA Termination and Release
Guestlogix appealed the latter determination to the Court of Appeal for Ontario. The Court of Appeal varied the decision of the motions judge and held that, in calculating the common law notice period that Ms. Antchipalovskaia was entitled to:
- She was only employed by Guestlogix for 2.75 years, the length of time she served following the implementation of the CCAA plan.
- Her eight years of overall service time could still be taken into account.
The Court of Appeal noted that, ordinarily when an employer sells its business and an employee continues to be employed by the purchaser:
- For the purposes of determining common law entitlements, an employee is deemed to have been terminated by constructive dismissal and a new period of employment is started with the purchaser; and
- For the purposes of determining ESA entitlements, section 9(1) of the ESA provides that the employee is deemed not to have been dismissed and to have been employed continuously by the purchaser for the same length of time as they were employed by the seller.
In its 2020 decision in a non-insolvency context in Manthadi v. ASCO Manufacturing, 2020 ONCA 485, the Court of Appeal had previously held that, even where an employee starts a new period of employment with a successor employer, their prior years of employment can be taken into account in determining their entitlement to common law notice following a subsequent termination. This was fair to the successor employer as they obtained the benefit of the employee’s experience and avoided incurring the costs related to recruiting and onboarding a new employment force.
In Guestlogix, the Court of Appeal held that the motions judge erred in disregarding the broad release that had been granted in the CCAA proceedings and finding that Ms. Antchipalovskaia had been employed continuously. Guestlogix argued that 4 months’ notice was appropriate as that was commensurate with Ms. Antchipalovskaia’s 2.75 years of post-CCAA service time. The Court of Appeal held that this did not recognize the benefit Guestlogix received from Ms. Antchipalovskaia’s prior experience:
In my view, this approach is not satisfactory because it does not accord with this court’s direction in Manthadi; specifically, it does not take account of the benefit the appellant received from the respondent’s prior experience. The respondent continued in her position without the need for any additional training. She had five years of experience doing exactly the same work. Notwithstanding that the court ordered release in the CCAA proceedings released any claim she may have for common law notice prior to her 2016 date of termination, the contribution she made to the appellant during her 2.75 years of employment was significantly different from the contribution of an employee at her level who did not have five years of prior employment with the appellant.
The Court of Appeal settled on seven months as the appropriate notice period.
Takeaways: Important for Purchasers to Consider Seniority of Assumed Employees
The Guestlogix decision highlights that purchasers need to consider the seniority of the employees that they are assuming, even if they have obtained a release of any prior employment claims related to those employees. The seniority will still be taken into account (although perhaps not in full) in determining the common law notice period that the employee is entitled to in any subsequent termination. Purchasers should adjust their valuations accordingly.
Ontario Court of Appeal CCAA proceeding termination employee